Copy for Real Estate Guide Column for 11-6-09

REAL ESTATE PATTERNS
By Ken DuVall

THE TAX CREDIT SCENARIO

Congress is considering proposals to expand the soon-to-expire $8,000 tax credit for first-time homebuyers, potentially applying it to all but the wealthiest. Supporters say doing so would further boost home sales, stabilize housing prices, and generate jobs. The credit now can be claimed by anyone buying a home who has not owned one for 3 years and who closes the deal by Nov. 30. It’s too late unless you pay cash.

Beyond extending the deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And increase the amount of the credit to $15,000. Currently the first-time home buyer credit is available to individuals buying their primary residence earning $75,000 or less, $150,000 for joint filers. First time buyers accounted for fully 45% of all 2009 sales.

By the end of November, the credit is estimated to have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, so it was a good thing. The bad news is the program will cost the IRS over $10 billion in lost revenue. Lobbying is under way to extend the current credit until March, 2010.

Economists predict 2010 will be the first year since 2005 for housing to again contribute to the growth of the U.S. economy. After a steep 3 year decline, existing home prices in 20 metros have rebounded since February by almost 7%. Prices are expected to rise 2% next year, but forecasters don’t believe the increase in prices will discourage homebuyers. Over 80% of economists surveyed think the recession is over and recovery has begun, but they expect the expansion to be slow as continuing unemployment persists.

U.S. existing home sales in September posted their largest monthly gain in over 14 years as consumers rushed to take advantage of the tax credit, rising 9.4% to a 5.57 million home annual pace. The tax credit has induced buyers back into the market, helping to stabilize prices. The foundation for the eventual recovery in the U.S. housing market is now being laid. Meanwhile, new home sales fell 3.6%. But the median price was off only 9.1% compared to a year ago, a sign that we may be on the mend. Unsold inventory remained unchanged and acceptable, a good thing.

However, the tax credit has come under serious scrutiny as reports of widespread fraud have emerged. The crooks among us jump on any new program as soon as it hits the street. Just like Medicare fraud to the tune of a $90 billion annual rip off. It’s disgusting.

There is speculation as to whether the pace of home sales would drop if the program ends. Should sales slow substantially, as was the case with auto sales after the “Cash for Clunkers” program expired, it could cause new undermining of our fragile housing market. The debate will likely become more heated as a decision on this pivotal housing issue materializes in coming weeks. Stand by.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all my columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 10-30-09

REAL ESTATE PATTERNS
By Ken DuVall

YOU HAVE QUESTIONS?

"I'm waiting for more information to decide to buy now or in a couple years," said Dong, a renter who hopes to buy his first home for about $500,000. "Different experts give different perspectives. And if you listen to the National Association of Realtors, it's always a good time to buy? How can you believe them?"

The answer to that last question is a resounding yes. They do more enormous, conscientious, and valid real estate research than anyone else in the country. Integrity is the name of the game. I’ve been a Realtor since 1963. No one is going to stroke me at this late stage of the game.

I checked Business Week, etc., to take a crack at answering Dong's housing questions: Which direction are interest rates likely to move in the next year? Up. Why are homebuilders starting work again when they still have homes left to sell? So they can stay in business and have product to sell. What home improvements add the most value with the least investment? Remodeling baths and kitchens.

Declines for inflated home markets? Tom Stratton, a 26-year-old Purdue University PhD candidate, thinks the market as a whole has stabilized but wonders whether price declines are in store where values are still inflated compared with local incomes. Stratton is especially interested in Berkeley, Calif., where he plans to start his academic career. The median home value in Berkeley last month was $665,000, down 4% from a year earlier. And the median family income there was $93,297.

Existing residents can afford to live in Berkeley because many of them bought houses decades ago before home values reached stratospheric levels. As longtime residents leave (a likelihood as unemployment rises), prices could take a dive. Berkeley has the advantage of being home to the University of California. College jobs have been relatively recession-resistant.

Baby boomers' influence on prices: Wes Dumey, a 31-year-old software engineer with a graduate degree in economics, wonders how the aging baby boomers will determine future housing trends. Dumey's parents, now in their late 50s, recently told him they'd likely leave their 3 bedroom home and find a smaller condo when they retire. Dumey questions whether younger buyers will then step in to fill the larger homes the boomers vacate.

"From my personal experience, there's no way I would buy a large house like that," Dumey said, "when you factor in insurance, property taxes, utilities, and you can have a $400 or $500 electric bill for air-conditioning in the summer."

Burns expects that homes smaller than 3,000 SF will be in greater demand in the future. So-called ‘echo boomers’ prize energy efficiency, not only because it's good for the environment, but because it's cost-efficient.

"Baby boomers are going to be interested in downsizing because smaller homes are easier to maintain," Burns said. "Generation Y (Boomer’s offspring, echo boomers born mid-70’s to early 90’s) are much more interested in not spending their time on the freeway." Well, let’s hear a big OK. Chico, the easy off-ramp from the fast lane of life, is what you seek and we’re here for you!

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all my columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 10-23-09

REAL ESTATE PATTERNS
By Ken DuVall

HOMES STILL A GOOD INVESTMENT

A flood of foreclosures early next year will dampen the housing recovery. The tidal wave is being held back this year as lenders struggle with the dilemma. But that finger will come out of the dike by year-end. Making matters worse…unemployment above 10% and a new surge of adjustable rate loans are due to increase monthly payments soon.

The housing market debacle led the country into recession. But it’ll lead us out too. My bet is the Fed not only extends- and adds more types of buyers- to the home buyer’s tax credit programs but increases the deduction. Some are proclaiming the recession is ending. We’ll see.

Sales of foreclosed homes will hit 1.9 million in 2010, up from 1.7 million this year, vs. a half-million a year until 2007 when the housing market collapsed. For all the doom and gloom about the housing market, it still generally pays to own a home. Of course, historical trends don't pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and then need to sell quickly, can still get burned.

History suggests the American Dream is a pretty safe bet. Real estate is a leveraged investment. For easy math, a $10,000 down payment on a $100,000 home produces a 100% return on your cash if the home price only goes up $20,000 in value. That's like buying a $10 stock and watching it go to $20. But that little equation won’t help the 16 million homeowners who owe more today on their mortgage than their house is worth.

And there are other benefits: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can't do that with stock. You’ll always need a roof over your head. But if you own for a decade or more, price appreciation usually overcomes any slumps. In the late 1990s, home values started growing like stocks. For 5 years, they appreciated at 8% to 9% a year, or about 5 percentage points ahead of inflation.

Nationally, home prices today are down an average of 30% from their peak in 2006. Based on the median price of homes sold each year, prices have risen by about half a percent a year above inflation, or roughly 4%, since the 1940’s. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6% annually, from $20,100 that year, to $195,200 in August of 2009. That’s an 871% profit.

You won't find many skeptics among people who bought homes in the '90s and still live in them. Their homes may be worth tens of thousands of dollars less than at the peak, but they're still frequently worth twice what they paid. Specific example: One house in Ewing, N.J., that sold for $160,000 in 1996 was worth about $410,000 3 years ago. It's still worth $375,000 today. That’s a 134% return on the original $160,000 price.

Housing has proved a good investment if you stick with it. And with prices having already fallen so far, buying now could make it an even better one. Time cures a multitude of sins.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all my columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 10-9-09

REAL ESTATE PATTERNS
By Ken DuVall

TAKING STOCK

Adding to our current problems is the use by appraisers of foreclosed or distressed properties as comparable sales. Also, without adjusting for the run-down interior condition of some of these homes by doing just a drive-by inspection.

An inspection of one such home found that it would cost $200,000 to restore it to a livable condition. Before they vacated, the former owners “took everything out of the house”, including door knobs. For an appraiser, it seemed like a valid comp, until, and if, they had viewed the interior.

The new Home Valuation Code of Conduct (HVCC) is designed to keep appraisers from being influenced by those with a financial stake in the transaction. It has encouraged lender’s use of inexperienced out-of-town appraisers unfamiliar with local markets. The appraisal crisis has become so bad that sales are being lost because of appraisals coming in below the contract sales price. Not a good thing.

Another study compared homes in 300 U.S. markets for a “sample” 4 BR, 2 1/2 BA 2,200 SF home. In Grayling, Mich that home costs $112,000. There, residents paddle canoes right through town on the AuSable River, ride snowmobiles on forest trails, and take scenic walks among 150-year old trees at Hartwick Pines State Park.

At the other end of the spectrum lies the San Diego neighborhood of La Jolla, where the sample home costs $2.1 million. As always, location is everything. Buyers pay a premium for its proximity to a big city, easy access to the Pacific Ocean, and great weather. Other California markets like Beverly Hills and Palo Alto with similar qualities are also in the top 5 most expensive markets.

Not surprisingly, California claimed 8 of the top 10 most expensive U.S. housing markets. Completing the top 5 were Beverly Hills, $1,981,750; Greenwich, Conn., $1,519,250; Palo Alto, $1,489,726; and Santa Monica, $1,460,912. I’ll guess with you why Santa Barbara didn’t make the cut. The Golden State too had the largest difference between the most and least expensive markets: Lancaster (in the high desert north of L.A.), registered an average sales price of $165,205, $1.9 million lower than La Jolla.

The good news: The latest statistics show the national pending-home-sales index up 6.4% in August to its highest level since March, 2007. Residential construction spending has gone up at its fastest pace in 16 years. Also, existing home sales have risen for 7 straight months for the first time since the gauge was created in 2001.

Buyers are rushing to complete their purchases before Nov. 30th to qualify for the $8,000 1st time buyer’s Fed tax credit. It’s a good bet the Fed will extend the deadline as its clearly spurring sales. Plus, the average mortgage rate fell below 5% for 30-year fixed loans, and to a record-low 4.36% for a 15-year fixed last week. Fence sitting buyers are jumping in after seeing prices rise and rates fall for several months. Still, loan qualifying conditions remain very tight.

Chico, with some 567 homes sold worth $171,449,608 since 1-1-09 priced from $100,000 to $1.12 million, equates to an average price of $302,380 with a median of $275,000. Plus there’s another 159 homes in escrow. Sales here are going along just nicely, thank you very much.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings and all my columns at www.KenDuVall.com. Call Ken at 345-3700 for all your real estate needs. Free consulting.